Law No. 4733 Regarding the Organization and Duties of the Tobacco and Alcohol Market Regulatory Authority (the “Law”)1 sets forth the general principles applicable in four markets in Turkey, which are (i) tobacco market, (ii) tobacco products market, (iii) alcohol market and (iv) alcoholic beverages market2 . The Tobacco and Alcohol Market Regulatory Authority (“TAPDK”), as the regulatory authority established by the Law, is granted an absolute monitoring and regulatory power over the companies operating in the said markets. Article 2 of the Law stipulates that TAPDK shall be authorized, to the extent it deems necessary, to order any company producing, marketing, selling or distributing goods and/or services in the aforementioned markets to provide it with any information/document at any time.
In accordance with Article 8 of the Law, actions such as processing tobacco or producing tobacco products without having the necessary licenses are categorized as crimes whose sanctions vary from one to three years of imprisonment along with severe monetary fines.
In order to ensure a due application of the Law, TAPDK has issued a number of regulations directly applicable to all market players. From a tobacco and tobacco products perspective, the most noteworthy regulations are;
(i) Regulation on the Procedures and Essentials Regarding Production, Processing and Domestic and Foreign Trade of Tobacco (the “Tobacco Regulation”), and
(ii) Regulation on the Procedures and Essentials Regarding Production and Trade of Tobacco Products (the “Tobacco Products Regulation”).
According to the Law, each one of cigarette, cigar, cigarillo, water pipe tobacco, pipe tobacco and cut filler tobacco constitutes a separate “tobacco product”. Production and Activity Conformity Certificate, which must be obtained by any company producing tobacco products, is a license granted on tobacco product basis. In other words, that a company holds a Production and Activity Conformity Certificate does not necessarily mean that it has the right to produce any tobacco product. It can only produce the tobacco products specifically covered by its Production and Activity Conformity Certificate.
Please note that tobacco processing is a separate licensable activity which cannot be carried out by every tobacco product producer. Only the companies having (i) Tobacco Processing Facility Establishment Permit and (ii) Tobacco Processing Facility Activity Permit are authorized to process tobaccos in Turkey. In case a certain company, which does not have any of the two aforementioned licenses, purchased any unprocessed tobaccos for production purposes, it would have to make such tobaccos processed through a third party company having the necessary licenses.
In an attempt to protect domestic tobacco growers, Article 29 of the Tobacco Regulation provides that tobacco import shall only be made by tobacco product producers to the extent necessary for their production purposes. According to the Tobacco Regulation, those companies who want to import tobacco shall obtain a Tobacco Import Conformity Certificate for each tobacco shipment into Turkey.
The obtainment of a Tobacco Import Conformity Certificate is not sufficient for importing the relevant tobaccos. The importing company has also to complete the generally-applicable customs formalities. Import of homogenized tobacco, expanded tobacco, and tobacco stems is also subject to the aforementioned procedures. Among the principal tobacco origin countries of the tobacco product producers in Turkey are Brazil, Zimbabwe, Republic of Malawi, South Africa and Mozambique.
Tobacco products export
Article 14 of the Tobacco Products Regulation provides that export of tobacco products produced in Turkey shall be free. Nevertheless, there is a monitoring mechanism set up by the Tobacco Products Regulation, which enables TAPDK to track every single step of a tobacco products export shipment. The said monitoring runs through notifications made by tobacco products producer companies to TAPDK along with independent TAPDK controls which may take place at any time. In accordance with the Tobacco Products Regulation, information in the said notifications includes product features, shipment date and other logistic details.
In Turkey, most of the imported tobaccos (which are used in export tobacco products) are subject to the Inward Processing Regime (Dahilde Isleme Rejimi) stipulated under the Customs Law No. 4458. The Inward Processing Regime is a legal tool enabling exporter companies to import raw materials at global market prices without paying any customs duties. Hence, the Inward Processing Regime is indispensable for any producer in Turkey to remain competitive in export markets. One should bear in mind that any tobaccos imported under the Inward Processing Regime can only be used in the production of tobacco products to be exported.
Please find below the steps to be taken by a certain tobacco products producer company in case it imports tobaccos according to the Inward Processing Regime:
• First, the company applies to the Ministry of Economy to be granted an “Inward Processing Certificate” (Dahilde Isleme Izin Belgesi).
• Subsequently, the company applies to TAPDK to be granted a Tobacco Import Conformity Certificate (discussed above). • Having obtained the two aforementioned certificates, the company gains the right to import tobaccos without paying any customs duties.
• The company proceeds to the production of the relevant export products in which the tobaccos imported under Inward Processing Regime are used.
• The company exports the said products and notifies both TAPDK and the Ministry of Economy in order to close the Inward Processing Certificate.
Under the current TAPDK legislation, producing a tobacco product for the domestic market is subject to much more bureaucratic formalities such as notifying TAPDK of product details including toxicological data, package designs, health warnings to be placed on packages and trademark registrations. For each new domestic market-product, the said formalities shall be repeated in order to be granted a new Market Offer Conformity Certificate. Market Offer Conformity Certificate is a license granted on specific product (i.e., brand) basis. In case a certain company wanted to introduce a new product for the domestic market, it would first have to be granted a specific Market Offer Conformity Certificate for the said product.
Another aspect of the domestic market, which must be taken into account by any producer of tobacco products, is the excise tax burden. In Turkey, the excise tax applicable for tobacco products such as cigarette is levied through the “Labelled Products Tracking System” established by the Ministry of Finance in coordination with TAPDK. Under the said system, a private company has been exclusively authorized to sell product labels (which have to be placed on each product) to producer companies. In order to sell their products in the domestic market, producer companies shall first purchase labels from the said private company and place one on each product. The said company transfers a certain percentage of its label revenues to the Ministry of Finance. As such, the excise tax is collected.
Mandatory notifications to be served on TAPDK
Pursuant to Article 20 of the Tobacco Products Regulation, producer companies shall keep record of their raw material (especially tobacco) inventory movements, production quantities, product inventory movements, quantities of tobacco products transferred from its production site to warehouses, domestic sales figures on city basis, use of ethyl alcohol, quantities of used/unused/damaged/ returned/destroyed labels and export figures for five years and report the same to TAPDK on a monthly, quarterly, semi-annually and annually basis.
1 Published in the Official Gazette no. 24635 dated 9 January 2002.
2 The scope of this article is limited to the tobacco and tobacco products markets only.